"Deception and dishonesty" lay at the heart of a Midland car component manufacturer which had an £11 million black hole in its accounts, a court was told.

Birmingham Crown Court yesterday heard how TransTec, founded by Coventry North West MP and ex-Paymaster General Geoffrey Robinson, went bust in 1999 after it was unable to complete compensation payments to Ford.

Mr Robinson left the Birmingham-based company in May 1997 and is not implicated in the alleged fraud.

Chief executive Richard Carr (53), of Snitterfield Road, Bearley, Warwickshire, faces seven counts of fraud.

The charges against him centre on a failure to declare an £11 million ($18 million) compensation settlement deal with Ford to the company board, auditors, shareholders or the Stock Exchange.

Bill Jeffrey, the company's finance director, has already pleaded guilty to seven similar counts against him.

Anthony Hacking QC, prosecuting for the Serious Fraud Office, said Carr and Jeffrey - both chartered accountants - took part in a "joint enterprise" to make false statements to auditors and in published accounts "concealing TransTec Plc was in £11 million debt owed to Ford either by leaving it out or disguising it".

"They disguised the settlement in the accounts. There was deception and dishonesty at the heart of TransTec Plc," said Mr Hacking.

The jury was told how TransTec won a contract to make single overhead cam shaft cylinder heads for the engines of the Ford Explorer in 1993. A new subsidiary factory, TransTec Campsie, was set up in Londonderry in 1994 "because the Northern Ireland Development Board offered funding and probably tax incentives," said Mr Hacking.

"Production started in late 1995 but in February 1996 Ford discovered seven cylinder heads had cracked casings and leaking engines.

Production stopped briefly but started again in May 1996 but further problems caused severe delays for Ford's roll-out of the new Explorer model.

Overall, he said, the Ford company in Europe and the United States lost a total of $101 million in costs incurred.

He said correspondence between Ford Europe executives, based in Germany, and TransTec showed "by Easter 1997, Carr and Jeffrey were left in no doubt TransTec were going to have to pay substantial compensation to Ford".

In August 1997, a payment of $18 million was agreed, with $5 million paid by the end of 1997, $7 million by the end of 1998 and $6 million by the end of 1999. The last instalment was the only one which was not paid.

Mr Hacking said the "protracted negotiations" had been been kept "secret from the board and they took no legal advice even though they retained lawyers".

He added: "They (Carr and Jeffrey) knew the auditors had to be deceived as to the existence of this deal.

"If the auditors found out it would have to go into the accounts."

A chance remark over lunch about the settlement by a Ford employee to an employee of auditors Price-waterhouseCoopers on December 14 1999 was when "the balloon went up".

The trial continues.